Massachusetts' High-Speed Broadband Network in Limbo

(TNS) -- WORCESTER – The future of the state's high-speed broadband network, which brings internet to scores of public safety and government buildings in Central and Western Massachusetts, appears to be in limbo.

The private company that runs the network filed for bankruptcy March 22, and its parent company is suing the state in U.S. District Court, arguing it has no long-term obligation to keep the network running.

In arguments Friday in federal court in Worcester, a Canadian company made it clear that it wants out of the network, while a lawyer representing the state - which owns the network - raised doubts about whether a replacement could be found.

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"There may not be any other operators who can step in," Boston lawyer Robert J. Kaler told Judge Timothy S. Hillman during a discussion about possible long-term replacements. "The old expression applies: there's no sense in asking if the air is any good if there's nothing else to breathe."

A state official Friday argued for a temporary legal ruling and noted a request-for-proposals has been issued. But if losses reported by the company prove accurate, finding takers could prove difficult.

"It has $17 million in losses from servicing this network in the commonwealth," said Brian P. Voke, attorney for Axia NetMedia Corp. of Canada, in reference to its U.S. subsidiary, KCST USA Inc.

KCST USA – which up until just recently was called Axia NGNetworks USA – entered into an agreement with the state in 2010 to manage the new network, called MassBroadband 123. Financed with $90 million in federal and state funding, the project, administered through MassTech, the state's technology collaborative, was meant to bring broadband to underserved areas of the state.

The approximately 1,200-mile fiber optic network serves primarily government customers in 124 communities, including police in Fitchburg, Leominster and dozens of others. Shortly after it took the reins in 2014, KCST (then Axia USA) argued MassTech botched the rollout of the network – failing to build it properly or deliver an agreed-upon customer base – and the parties have been in litigation for years.

KCST USA's March 22 bankruptcy filing lists $9 million in losses and estimates annual losses of $2.8 million going forward. On March 23, the parent company, Axia of Canada, filed suit in U.S. District Court asking a judge to declare that the state's alleged failures constitute breach of contract and entitle it to walk away from the operation.

Friday, Mr. Kaler argued strenuously against such an idea, noting that Axia in 2010 signed a document guaranteeing it would continue to operate the network even if the subsidiary went into bankruptcy.

Mr. Voke, the Axia attorney, dismissed that possibility, however, arguing that federal rules prohibit anyone other than the entity licensed with the FCC from operating the network.

After more than an hour of arguments, Judge Hillman took under advisement a request from the state for a temporary restraining order prohibiting Axia from walking away from the network in the short term.

Mr. Voke said Axia intends to support the network through bankruptcy, but Mr. Kaler said the state couldn't afford to take any chances. He noted that Axia did not forewarn the state of its bankruptcy filing, press reports of which, he said, are shaking the confidence of both the public and wholesale customers.

"The media hasn't picked up on this (federal) case yet," Mr. Kaler told the court Friday. "But at one point Axia NetMedia was saying, 'Well, we hope it does.'

"Why would you say that?" Mr. Kaler continued. "It's not necessary."

Frosty relations between the sides were clear Friday, with Mr. Voke soundly rejecting Mr. Kaler's intimations about Axia not dealing in good faith.

"There hasn't been any good faith on the part of (MassTech) at all," Mr. Voke said, alleging an executive who flew in from Canada "at least three times" to negotiate was instead threatened with lawsuits.

Mr. Voke, whose client is seeking compensation for its losses, told Judge Hillman that Axia would be open to mediation.

The state – as provided for in the contract – had been preparing to go to arbitration over the matter prior to KCST's bankruptcy filing.

In court documents, the state noted a Superior Court judge denied a prior similar bid to get out of the contract by KCST (then Axia USA).

Mr. Kaler told the judge Friday that just about all Mr. Voke's arguments were not correct, and that the state's legal case will ultimately prevail. He said the Canadian company is trying to make any argument it can to avoid accepting liability, and added that the state months ago expressed concern to the FCC that Axia would do "precisely what they have now done."

Mr. Kaler referred comment on the case Friday to Paul McMorrow, director of policy and communications for the Executive Office of Housing and Economic Development.

Asked about Mr. Kaler's professed skepticism about a future operator taking over the project, Mr. McMorrow noted the state doesn't have the luxury of optimism.

"We have to assume the worst," he said, adding the state is working on multiple contingency plans. A request for proposals from other vendors is already live, he said, and is due May 1.

The bottom line, Mr. McMorrow said, is that the state is committed to ensuring the continued operation of the network.

"We're going to do what we have to do to make it work," he said. Asked whether that could include state management of the operation, he said "all options" were being evaluated.

"It is our belief that the bankruptcy filing is not in any way an indication that this network is not viable," Mr. McMorrow said. "We are committed to ensuring uninterrupted access in the short term to the anchor institutions connected to the network and to ensuring the long-term viability of the network."

Mr. McMorrow noted quarterly reports Axia provided to MassTech show a rise in revenues in 2016, particularly for the past two quarters.

"If that trend held for all four quarters of 2017, they'd have $3.2 million in revenue, a 66 percent increase over their 2015 total," he said.

Mr. Voke declined to comment Friday after court proceedings.

Mr. Kaler argued Friday that a judge needs to grant his motion to ensure there is no disruption in service for the hundreds of municipal customers that rely on it.

MassTech has already received a $225,000 demand from Verizon, he said, and similar notices are likely to follow. The fear, Mr. Kaler said, is that companies who provide services to or through the network may shut them down if they are not paid.

"God help us if something (bad) happens here," he said, noting the state runs local access to 911 services and law enforcement databases through the network.